Inflation’s Ripple Effect

 

April 21, 2023

 

Tracking inflation these days provides insights in two different areas.  First, of course, are the changes in the cost of every day living.  And second, inflation news has an indirect but powerful influence on the future of interest rates.  If inflation goes up or stubbornly remains above the Federal Reserve Board’s 2% target, then it’s logical to expect the Fed to raise rates as a way to bring it down.  If inflation is trending down in some meaningful way, then we might expect the Fed to hold off and monitor the trend.

 

The inflation data also factors into how some economists view our near-term economic future.  Whenever the Fed raises rates, its goal is to slow down the economy and pull some liquidity out of the business world, which pushes us all a step closer to a recession.  The dance between cooling the economy and crashing it is delicate and precise—and probably beyond the abilities of mere mortals.

 

So what are we seeing now?  The core Consumer Price Index—which excludes volatile food and energy prices—rose 0.4% in March after a 0.5% gain in February.    Multiply the average by 12 and you get roughly a 6% annual inflation rate.

 

So what are the tea leaves telling us?  The current rate is four full percentage points higher than the Fed target, but this represents a slowdown from the 7.5% inflation that the economy experienced the last couple of years.  Economists are expecting the Fed to raise rates, but not dramatically, in its next rate hike window, and then cross its fingers that this will lead the economy toward more stable prices across the economy.

 

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC

Founder & CEO

 

 

Source:

https://www.advisorperspectives.com/articles/2023/04/12/us-core-inflation-slows-only-a-bit-keeping-fed-on-track-to-hike

This material was prepared by BobVeres.com and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
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